Track2Realty Exclusive: It may sound like a paradox but the rental market of Gujarat city is showing bias in two directions when it comes to the property acquisition on rent. While the housing market is showing rental bias in the negative direction, the same property index is going northwards in the commercial vertical of property.
Even among the different segments of commercial property the trend is not uniform as demand for retail space is not as high as the demand for office space. It seems the rental index of the major markets like Ahmedabad, Vadodara and Surat is quite confusing and there is no emerging trend to show a direction. However, a closer look at the property market movement on ground in the state shows some method in the madness.
It is not that the rental index of Gujarat property market across the state is directionless; it is rather reflecting the growth pattern of the overall economy and societal mindset with the acquisition of property in the state. Since the economy itself is affecting various segments in different ways, hence this mismatch in the growth pattern of rental market across various verticals.
After all, Gujarat has historically never been known as the market for rental housing. As a matter of fact, while most of the urban business centres across the country were getting hotter on the rental value of the housing due to increasing economic activity during the peak cycle of economy, the same trend was never noticed in any of the property markets across the state at any given point of time.
Gujaratis traditionally believed in owning a house and even the migrant professionals in the state have the same kind of urge. Thus, despite of vibrant economic activities, Gujarat could never become an attractive rental housing market on the property barometer. The absence of institutional support to the developers for getting into rental housing, archaic rental laws and the low rate of return were among the other major reasons for the property market in this part of the world to not evolve as the major rental market for housing segment.
The growth of the economic activity during the peak cycle of 2005-07 gave some momentary fillip to the rental market in the city. Still, in a booming economy where the demand and supply cycle never had the major mismatch most of the occupants preferred to buy an apartment than take it on rent. The market slowdown post 2008 further hampered whatever growth the rental market of Gujarat had achieved due to the increasing presence of expat professionals. And hence, rental housing market of Gujarat remained among the lowest on the index of property market across the country.
Analysts believe the rentals have largely remained stable with downside bias in the last year. There is a general feeling within the built environment of Gujarat real estate that for the current year it looks good with economic conditions improving, with investment scenario expected to improve and thereby creating jobs.
Amit Oberoi, National Director-Valuation & Advisory Services and Research with Colliers International categorically says that there is no market for rental housing in Gujarat. According to him, people prefer to own houses and the government housing board caters to a very small quantum of development. Government prefers to work in PPP (Public Private partnership) model, wherein they provide land and at times increased FSI for developer to construct affordable housing.
“Residential sales volumes have been slow in Ahmedabad and Surat recently. However the perception is that the market will pick up from September onwards (from Ganesh Utsav festival, as is typical in past years when sales pick up from September till January),” says Oberoi.
However, requesting anonymity, a developer active in the couple of leading markets of the state says that the rental market in Gujarat has actually grown substantially in last two years. He recommends measures like easy registration of rent agreements, giving loan for properties on rent at home loan rates for multiple homes, amending society laws so that tenant gets say in society committee as well as landlord, making tenant registration in police station online and giving loans to tenants to furnish apartments at home loan rates to help the rental housing grow in the state.
However, the story of rental values has not been the same with the commercial property and interestingly the demand for rental commercial properties has shown an upward trend. Analysts point out that it is also indicative of the fact that even the capital value of the commercial property in the major markets has shown better appreciation than the housing segment in the last few quarters. That nevertheless has been only one of the indicators to reflect why and how commercial rentals have shown better appreciation than the residential property.
The fact of the matter is that even in the commercial segment there is no uniform pattern in the two key verticals of office space and retail space and that shows how the property market is indicating the larger outlook of the overall economy. The demand in the two verticals may not be going in two different directions altogether, yet there is absence of any uniform pattern to be vouchsafed as the trend.
The retail segment of the commercial property that looked bullish during the peak cycle of property rally has though shown upward movement, it is nowhere near the growth rate of the peak level. Reasons are very simple—the fact that the lifestyle driven consumption level of the state at large has gone down drastically in the current turbulent economic phase has its effect on the demand for acquisition of the space as well. It is all the more evident in the sense that while the retail per se has seen some growth in the rental values, it has been stagnant with the hotels and the multiplexes; thus reflecting that people are only spending on the need based commodities and luxury spending has completely been curbed in the major cities of Gujarat.
The commercial property owners are actually being forced to renegotiate with the hotel and multiplex chains to avoid getting their space get vacant. Some of them have even gone into revenue sharing model to avoid complete price crash. Most of such developers who are operating on the lease model have been hit badly. The sales model has also brought the inventory hangover high for the developer.
However, what is all the more interesting in the city property market, at least in the last six months, is the fact that the office space is showing an increase in both the capital as well as rental values. Not only that, the city based brokers even suggest that there has been more enquiries in this segment; thus office occupiers lookout helping the rental value movement to the northward direction.
It is true that the rental market in the Gujarat real estate is expecting growth this year. However, it will take time to revive and bring in a splurge of funds that could change the dynamics of demand and supply in the major cities of the state. Factors such as location, cost and quality will play a decisive role in increasing the demand for rental this year. Property markets across the state are today witness to a gradual movement but revival is very much anticipated as a real estate rental market.
The obvious fact is that the whole market value has risen is pushing the rental rates up. But with consistent control on rental brackets the situation can be curbed also. Gujarat can very much be made a model market for rental housing as well with some policy incentives. It can become a model market in future but presently it has to focus on making the real estate market resilient and steady which can make it an attractive option for corporate sector as well as individual customers too.
The growth pattern and the overall trends may be going into different direction at this point of time, but the property market across the country is witness to the fact that the rental markets in various segments has a symbiotic relation and the growth in one of the verticals has a chain effect on the growth of other verticals. It may not have been overtly seen in Gujarat in the last few quarters but then these quarters have been confusing in many of the property markets due to recent economic downturn and political instability prior to the General Elections.
Analysts are hence looking curiously at the rise in the rental values of the office segment of real estate as it also reflects increasing businesses which could further lead to more disposable income and job opportunities for the both the local population as well as the expats. This is what is actually needed for the growth of the retail and housing segment in general and in effect in its rental demand in particular. Hence, any upward movement of rental values in any of the segment of real estate is quite encouraging for the Gujarat property market.
